Question

At the beginning of 2017, the Mini Construction Company received a contract to build an office building for $1.2 million. Mini will construct the building according to specifications provided by the buyer, and the project is estimated to take four years to complete. The cost breakdown is as follows. Determine the amount of revenue and gross profit to be recognized each year. (do not include $ in your answer, round to 4 decimal places).

	2017	2018	2019	2020
cost incurred during the year	224,000	331,000	333,000	200,000
Estimated cost to complete	800,000	555,000	222,000	0

	2017	2018	2019	2020
Revenue to be recognized in this period
Gross Profit

Answer 1

Solution

	2017	2018	2019	2020
Revenue to be recognized in this period	$                262,500	$           337,500	$                360,000	$              240,000
Gross profit	$                   38,500	$                6,500	$                  27,000	$                 40,000

Working

		2017	2018	2019	2020
A	Contract Price	$ 1,200,000	$ 1,200,000	$ 1,200,000	$ 1,200,000
B	Cost Incurred to Date	$ 224,000	$ 555,000	$ 888,000	$ 1,088,000
C	Estimated cost yet to be incurred to complete the contract	$ 800,000	$ 555,000	$ 222,000
D = B+C	Total Cost	$ 1,024,000	$ 1,110,000	$ 1,110,000	$ 1,088,000
E = (D/B) x 100	% of Completion	22%	50%	80%	100%
F = A x E	Revenue to date	$ 262,500	$ 600,000	$ 960,000	$ 1,200,000
G	Revenue of Previous year	$ 0	$ 262,500	$ 600,000	$ 960,000
H = F - G	Net Revenue this year	$ 262,500	$ 337,500	$ 360,000	$ 240,000
I	Cost to date	$ 224,000	$ 555,000	$ 888,000	$ 1,088,000
J	Cost to date of previous year	$ 0	$ 224,000	$ 555,000	$ 888,000
K = I - J	Net Cost for the year	$ 224,000	$ 331,000	$ 333,000	$ 200,000
L = H - K	Gross Profits	$ 38,500	$ 6,500	$ 27,000	$ 40,000